The US Dollar Index strengthens to approximately 98.55 during the early European session on Friday. The US Consumer Price Index increased by 2.7% year-over-year in November, which was below expectations. Cooling US inflation may create opportunities for the Federal Reserve to implement rate cuts. The US Dollar Index, which reflects the value of the US Dollar against a selection of six global currencies, is currently trading positively around 98.55 in the early hours of European trading on Friday.

The DXY regains some lost ground as market sentiment remains cautious. The University of Michigan Consumer Sentiment Index and UoM Consumer Inflation Expectations data are set to be the focal points later on Friday. The US Dollar experiences a rebound from its 11-week lows as traders adopt a more cautious stance. Nonetheless, the possible appreciation for the DXY could be constrained by expectations of additional Federal Reserve rate reductions in 2026, given indications of a declining US labor market and subdued inflation.

In November, US inflation, as indicated by the Consumer Price Index, moderated to 2.7%, as reported by the US Bureau of Labor Statistics on Thursday. This reading fell short of the market consensus of 3.1%. Meanwhile, US core CPI, which excludes volatile food and energy prices, increased by 2.6%, falling short of the anticipated 3.0%. This figure represents the most sluggish rate observed since 2021.

The weaker than anticipated US inflation report has sparked conjecture that the US central bank could lower interest rates earlier than initially forecasted. This may lead to increased selling pressure on the Greenback in the short term. The financial markets currently reflect a mere 26.6% likelihood that the Federal Reserve will lower interest rates in its upcoming January meeting, following a series of quarter-point cuts at the last three meetings, as indicated.